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Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.
Updated January 05, 2024 Reviewed by Reviewed by David KindnessDavid Kindness is a Certified Public Accountant (CPA) and an expert in the fields of financial accounting, corporate and individual tax planning and preparation, and investing and retirement planning. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes.
A wage expense is the cost incurred by businesses to pay their hourly employees.
As a matter of record-keeping, the wage expenses line item may also include the expenses of payroll taxes and employee benefits. A wage expense may be recorded as a line item in the expense portion of the income statement. This is a type of variable cost.
Wage expenses are sometimes reported for each department. This is usually the case when there is a production department, which often has the most hourly employees.
As an alternative, wage expenses for production workers may be added into the cost of goods sold (COGS) item on the income statement.
Wage expenses vary from one period to the next, depending on the number of business days in the period and the amount of overtime to be paid.
For many businesses, wage expenses increase during the winter holiday season in response to higher demand for their products. After the holiday season, companies may cut back on the number of workers as sales slow.
Under the accrual method of accounting, wage expenses are recorded based on when the work was performed. Under the cash method of accounting, wage expenses are recorded at the time the payments are made.
Wages payable is the line item that records how much money is owed to workers but not yet paid. It is a liability account. When a wage expense is recorded it is a debit to the wage expenses account, which requires a credit to the wages payable account for the same amount until the wage is paid to the worker.
Wages are typically paid to a worker in the pay period following the period in which the work was performed, so there is always a delay that must be reflected in the wages payable account. A wage expense is listed on the income statement while the wages payable account is a liability on the balance sheet.
A wage expense has to at least be equal to the minimum wage dictated by the federal government or the state government. The current minimum wage in the U.S. is $7.25 an hour and has not been raised since 2009.
Many states have implemented minimum wages that are higher than the federal wage and employers in those states have to pay the higher state minimum wage.
Many companies pay a higher minimum wage than the federal or state minimum wage. They include Walmart, Kroger, Target, Costco, and Amazon.
Thirty states and the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands all have mandated minimum wages that are higher than the federal minimum wage. Twenty-two states increased their minimum wages on Jan. 1, 2024.
Wage and salary are often used interchangeably but they refer to different types of payments for employment.
Wages most often mean hourly pay. The worker is paid per hour for a set number of hours per week. If they go over the set amount of hours, they are usually paid overtime. Overtime pay is typically higher than regular hourly pay; often it's 1.5x the hourly pay.
Salary refers to a set payment and is usually quoted as an annual sum rather than an hourly wage. There is no strict number of hours per week that the individual works, and overtime is rarely paid.
Salaried jobs usually also come with better benefits such as 401(k) plans, health insurance, life insurance, and flexible spending accounts (FSA).
All U.S. states may set their own minimum wage rates or accept the federal rate as the state's minimum. Cities and counties may impose higher rates than the state's rate.
For example, California's minimum wage is $16 an hour as of Jan. 1, 2024. However, many cities and counties in the state have set their rates higher.
The jobs site ZipRecruiter actually has a "Decent Jobs" category, and it reports that $21.59 an hour is the average pay nationally in that category. Not surprisingly, there are big differences depending on the location of the job. Eight of the 10 highest average hourly pay rates were in cities in California, Hourly wages there range from $24.48 per our to $27.16 per hour.
The median weekly earnings of full-time wage and salary workers in the U.S. was $1,118 in the third quarter of 2023, according to the U.S. Bureau of Labor Statistics. That was an increase of 4.5% over a year earlier.
In business and in accounting, wages and salary are two different types of expenses. Wages are hourly rates paid to workers, and they may vary seasonally along with the business' demand for labor. Salary is considered an annual expense of doing business. Salaried jobs tend to be more secure and usually have better benefits than hourly work.
Article SourcesIf you are unable to attend your company’s annual general meeting, consider using a proxy to represent you.
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